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kathleen curran
Management Consultant, Singapore
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Value Capture Model: Assessing Capturable Value
🔥 Ryall (2013) suggests that the Value Capture Model enables managers to "more precisely estimate the effects of strategic choices on a firm's value network". A value network is comprised of firm, customers, and suppliers. Compared with Porter's more structural assessment of competitive advantage, VCM functions more at the operational level (though not exclusively). The model employs a mathematical formula to determine maximum and minimum CAPTURABLE value. I would like to understand the mathematical model and am seeking expertise from those with VCM experience.
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Jaap de Jonge
Editor, Netherlands
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Ryall's Value Capture Model
Hi Kathleen, can you explain a bit more what Ryall's Value Capture Model is about?
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Ivy
Teacher, Netherlands
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Creating versus Actually Capturing Economic Value
The Value Capture Model by Bryan, Ryall and Schipper is a game-theory-based framework for analyzing how businesses can retain a share of the value they create for customers and other stakeholders. The model utilizes cooperative game theory to explain how competitive dynamics and negotiation influence a firm's ability to capture value, providing a mathematical foundation for business strategy by defining the "core" – the range of fair value distributions between players. The model emphasizes that capturing value depends not only on creating it but also on strategic actions, bargaining power, and the competitive landscape.
The model differentiates between CREATING economic value and successfully CAPTURING a portion of it. A company can create immense value for a buyer but still fail to capture much of it if others can capture it more effectively.
How the Value Capture Model Works
- Value Creation Networks: The model begins by identifying players (firms, buyers, suppliers) and their potential value creation networks.
- Characteristic Function: It defines a characteristic function that quantifies the total value each possible subset of these agents can produce.
- The Core: The characteristic function allows for the determination of the core, which defines the bounds of value capture for each agent.
- Bargaining Power and Expected Value Capture: The model uses parameters like αi to represent each player's bargaining power. This allows for the calculation of expected value capture for each player, showing how much value they are likely to capture based on their strategic positions.
The Main Use of the Value Capture Model
In short, Ryall's Value Capture Model offers a strategic lens for businesses to understand that merely creating value isn't sufficient; they must also develop strategies and leverage their competitive advantages to capture a significant portion of that created value.
Source: Bryan K.A., Ryall M. and Schipper B.C. (2020), "Value Capture in the Face of Known and Unknown Unknowns".
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